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60% of Social Impact Bond funds spent on overhead and profits

“When Social Impact Bonds first appeared we expected that they would prove to be more expensive, but this is even worse than what we expected." — James Clancy, NUPGE National President.

Ottawa (09 March 2016) — Based on figures from the intermediary group running the first Social Impact Bond project funded by the Canadian government, 60 per cent of the funds are being spent on overhead and investor profits.

Only 40% of government funding going to skills training

The project funding agreement, which the National Union of Public and General Employees (NUPGE) obtained through the Freedom of Information Act, states that the Canadian government is spending up to $2.75 million on a Social Impact Bond project called the Essential Skills Social Finance Pilot Project. According to the backgrounder for the project, the maximum amount that will be paid to colleges delivering the training program is $1.1 million. That means only 40 per cent of the money the federal government is providing will be spent on skills training.

Up to 400 people are supposed to receive skills training through this Social Impact Bond. Colleges are receiving $2,000 per student, as well as up to $750 in additional payments, depending on how students perform in tests after completing the program. In the worst case scenario, only $800,000 of the federal government funding would actually be spent on training.

“When Social Impact Bonds first appeared we expected that they would prove to be more expensive, but this is even worse than what we expected”, said James Clancy, National President of the National Union of Public and General Employees (NUPGE).

New form of privatization, same old secrecy

While Social Impact Bonds may be a new form of privatization, they have the same level of secrecy as older methods. In the contract between the federal government and the intermediary organization, key information is kept secret.

Even though the public is funding the service, the targets the project has to meet before it’s considered successful are hidden. We'll be told we’re paying for success, but we will have no idea of whether the project is actually successful.

“When we’re not allowed to see what targets the project has to meet before investors make a profit or how large those profits will be, it is very hard to believe the claim that Social Impact Bonds will save money,” said Clancy. “Sadly, this level of secrecy is typical of what we’ve come to expect with privatization.”

Additional layers of bureaucracy and investor profits eat up most of the funding

While many details are kept secret, it’s not hard to guess where the money is going.

Social Impact Bonds require new layers of bureaucracy. There’s the intermediary organization to find investors, to find an organization to deliver the service and oversee the project. There are the lawyers and accountants required to negotiate the contract with the government providing the funds. Then, there’s the cost of measuring whether the project met its targets.

And, while it’s not part of the original Social Impact Bond model, no privatization scheme would be complete without an expensive consultant or two. For the Essential Skills Social Finance Project KPMG have been retained as “financial advisor.”

Finally, there’s the profit for investors that the intermediary group says will be “up to 115% if metrics are met.”

Investors fund only a small portion of total cost

In theory, investors in Social Impact Bonds fund the project and governments repay them only after the project has been judged a success. But in practice, it appears Social Impact Bonds can’t even manage to meet that goal. For the Essential Skills Social Finance Project, the federal government is on the hook from the get-go and will end up paying most of the costs.

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 360,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE